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T. N. Pandey

T. N. Pandey on how well-meaning tax provisions are being hacked at the altar of poor implementation

COMMENDING the Finance Bill, 2002 for the consideration of the Lok Sabha, the Finance Minister, Mr Yashwant Sinha, in the context of the one-by-six scheme, observed thus:

"Considering the representations, I propose to substitute the criterion of subscription to a telephone under the one-by-six scheme with subscription to a cellular phone."

Altering one of the criteria, especially when the one-by-six scheme was beginning to take roots, does not seem correct. And the reason given for it is not convincing either. The low-cost fixed telephone has to be considered vis-à-vis the cost of maintenance. There are those who run up huge telephone bills, but do not file their returns. The best way to tackle tax evasion in such situations is to fix a monetary limit (as in the case of membership of clubs) and provide that those whose telephone bills are, say, Rs 12,000 or more in a financial year would continue to be covered by the one-by-six scheme. The total elimination of this criterion seems improper.

Budget 2002 has removed another potent tool for tackling tax evasion — Chapter XXC of the I-T Act, that is. Para 176 of the Budget speech spells out the reasons for this decision.

There is no denying the taxpayer-friendliness of this measure. Chapter XXC was inserted in the I-T Act by Section 34 of the Finance Act, 1983 to implement the long-term fiscal policy, for curbing tax evasion and the use of black money in immovable property transactions. The well-conceived provision became unworkable because of the lethargy and apathy of the tax department to take corrective actions. Based on the experience gained and the recommendations made at the conferences of the Appropriate Authorities who were entrusted with the task of implementing the provisions, the Chapter could have been given more teeth. Again, implementation without accountability has added to the woes of the I-T Department.

Owing to a number of incorrect decisions, the I-T Department is saddled with a number of properties acquired by it. Now that the Chapter is removed, the Department should disclose details about the unsold property and those disposed of in distress sales.

The fact that this Chapter was well-conceived and worked well for quite a while is clear from the recommendation of the Commissioners of Income-Tax:

"...Initially, Chapter XXC made a good impact, but since 1997 or so, with the various restrictions imposed on the appropriate authority by various High Courts and Supreme Court judgments, the provisions have become internally unworkable..."

If that were the situation, strengthening and making the provisions workable would have been more appropriate rather than throwing the baby along with the bathwater. Is this good administration of tax laws?

The removal of Section 230A is another case in point. This Finance Act, 2001 removed this provision. Thus, an important source of information regarding the persons who purchased and sold immovable property exceeding Rs 5 lakh was eliminated as a measure of taxpayer friendliness. This section prohibited the registration authority from registering any document affecting a sale/transfer, and so on, of any property valued at more than Rs 5 lakh (with effect from July 1, 1995) unless the transferor produced before the registering authority a tax clearance certificate from the AO in respect of his liability under the I-T Act. Though this section was primarily intended to ensure payment of taxes due, it provided useful information on those entering into immovable property transactions.

The Department could probe into whether correct sale considerations have been shown, besides ensuring that the tax liability of the seller is settled before sale of property.

Complaints were more often about malpractice by the IT Department staff — in issuing tax clearance certificates, for instance — and not about the soundness of the provision. But here again, rather than setting right the problems and streamlining the procedures, the section itself was removed — this is akin to chopping off one's head to get rid of a headache.

It is unfortunate that such enforcement provisions are being removed one by one merely because of inefficient implementation.

The concept of taxpayer friendliness is being wrongly interpreted and applied — lax provisions for checking evasion would certainly be unwelcome. The appropriate course is to strengthen the provisions and streamline the procedures — and not in removing the effective sections from the statute.

Such moves by the tax administration will shake the confidence of well-intentioned taxpayers and smack of defeatism on the Government's part.

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